Ratio Juris. Vol. 22 No.

2 June 2009 (26080)

Between Law and Social Norms: The Evolution of Global Governance

GRALF-PETER CALLIESS AND MORITZ RENNER
Abstract. It is commonplace that economic globalization poses new challenges to legal theory. But instead of responding to these challenges, legal scholars often get caught up in heated yet purely abstract discussions of positivist and legal pluralist conceptions of the law. Meanwhile, economics-based theories such as Law and Social Norms have much less difficulty in analysing the newly arising forms of private and hybrid governance without government from a functional perspective. While legal theory has much to learn from these approaches, we argue that they fail in one crucial point: They cannot uphold the analytical distinction between law and non-law. The reasons for this shortcoming are theory-immanent in that the economic theories focus on efficiency and their actor-based perspective are necessarily blind to laws own rationality. We therefore propose to further develop those functional approaches to the study of global governance by complementing them with elements from Niklas Luhmanns systems theory of law. This will provide us with a conceptual framework for analyzing the workings of global governance regimes without ignoring their potential for legalisation and constitutionalisation. As we will show in three concrete examples (Corporate Social Responsibility, lex mercatoria, and internet regulation) we can thus describe the evolution of new forms of legal regulation beyond the nation-state. This will also allow us to draw some preliminary conclusions on the role of law in the context of globalization and, at the same time, show the direction for further empirical research.

1. Introduction The study of globalization is a decidedly interdisciplinary endeavor. Especially in current discussions of global governanceunderstood as the provision of good order and workable arrangements (Williamson 2005, 1) for cross-border situationsthe nineteenth century division of academic disciplines is beginning to blur (Dezalay and Garth 2002, 311). Jurisprudence, however, seems to adapt to this situation only hesitantly (Twining 2000, 50). The legalization of global governance, for example, is discussed
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by political scientists rather than academic lawyers (Abbott et al. 2000). Globalizations challenges, however, go to the very core of legal discipline. On the one hand, it seems that in the ambit of global governance there is a trend towards non-legal forms of regulation. It is evidenced e.g., by the rise of Alternative Dispute Resolution (ADR) (Calliess 2006) and the emergence of new trust-based regulation models in e-commerce contexts (Calliess 2008). On the other hand, however, we can witness the evolution of supposedly legal and semi-legal forms of regulation beyond the nation-state which are often referred to as private regimes (Bernstein 1992) or hybrid regimes (Teubner 2002). While both these developments are readily conceptualised by economics- and political science-based approaches that are labelled as governance without government (Rosenau and Czempiel 1992) or economic governance (Dixit 2008), legal theory has largely failed to grasp the intricate relationship between law and social norms in the context of global governance regimes that might even necessitate a reconsideration of the concept of law itself (Cotterrell 2008). In the rst part of this paper (sec. 2), we approach this problem by proposing a functional analysis of the role of law that allows us to effectively contrast legal with non-legal forms of regulation. To this end we will draw upon concepts from the economics-based theory of Law and Social Norms which explains how both law and social norms contribute to stabilising the behaviour of economic actors. We will argue, however, that this actor-based approach fails to come up with a sufficiently selective denition of the function of law. Therefore, we will complement it with a communication-based approach building upon Luhmanns theory of social systems. On this basis we will introduce a distinction between the performance and the function of legal systems that allows for a more accurate analysis of the role of law in its relation to society as a whole. In the second part of our paper, we will test the analytical framework developed in the rst part by trying to conceptualize the emergence of global governance regimes in terms of legal theory (sec. 3). To this end we will, after laying out the basic preconditions for the evolution of legal systems, briey sketch three examples of global governance regimes. We will then show how these regimes enter into a performance competition with both domestic and international law by providing dispute resolution and regulatory services. We will argue that governance regimes develop into legal systems at the point where they assume the function that law fulls towards society as a whole: the stabilisation of normative expectations. In our conclusion, we can then shed some light on the relation of law and social norms in the context of global governance (sec. 4). If our hypotheses that (a) legal and non-legal governance mechanisms compete in terms of dispute resolution and behavioural control, that (b) the social function of law lies in the stabilisation of normative expectations and that (c) global
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governance regimes that take on this function can develop into legal systems hold true, then we will be able to point out both the differences and the interrelatedness of legal and non-legal forms of regulation, of law and social norms, on the global level from a legal theory perspective. 2. Law and Social Norms: A Functional Approach The question what is law is the eternal question of legal theory (Hart 1997). The positions in this debate are well-known and have changed only little during the course of the twentieth century. The discussion is largely dominated by two strands of legal thought that can be subsumed under the labels of legal positivism on the one hand and legal pluralism on the other. The basic assumptions of legal positivism can be traced back to Austin and Weber and revolve around the idea that legal norms are backed by mechanisms of sanctioning (Austin 1995; Weber 1954). Most notably in Kelsens writings these mechanisms are identied with state institutions, the very idea of law thus being inextricably linked to the concept of the nation-state (Kelsen 1945). These assumptions have always been challenged by sociological approaches to the law that rely on the groundbreaking work of Eugen Ehrlich, which focused on the emergence of norms in different social contexts outside the legal system (Ehrlich 1913). During the last decades, these ideas have been taken up by authors who rally under the ag of legal pluralism in order to overcome the jurisprudential xation on the nation-state and get an analytical grip on phenomena of social ordering beyond or even without the nation-state (Teubner 1997; Schiff Berman 2007). Both strands of legal theory, however, seem to have not much to contribute to the interdisciplinary debate on global governance that is much less interested in abstract denitions of the concept of law than in the concrete regulatory arrangements that emerge in transnational constellations (Dixit 2004). In our view, therefore, the most pressing demand on contemporary jurisprudence is to make legal concepts compatible with those of the social sciences without at the same time losing sight of the very own purpose of legal thinking, i.e., the normative analysis of legal structures. This presupposes that legal theory, on the one hand, opens itself to the methods and insights of the social sciences and, on the other hand, succeeds in integrating those into a normative theory of the law. As a step in this direction, we will try to bring together elements for a theory of social ordering from both economics and the sociological theory of law. Borrowing from both Law and Economics and Systems Theory, we outline elements for a functional analysis of different regulatory mechanisms that will allow us to better describe global governance regimes in their oscillation between law and social norms by identifying the potential overlaps of social science approaches with a genuinely jurisprudential perspective.
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One of the most notable functional comparisons of law and social norms in the social sciences comes from economic theory. It was rst elaborated in the early 1990s in Ellicksons analysis of informal dispute resolution between neighbours (Ellickson 1991). Building specically on his ideas, Law and Social Norms as a school of thought tries to explain regularities in collective behavioural patterns in terms of economic analysis. In this context, the function of both social and legal norms is seen in enabling co-operative behaviour, i.e., any behaviour that contributes to the resolution of cooperation problems caused by uncertainty (Posner 2000a). Drawing on concepts from New Institutional Economics and Game Theory, Eric Posner, for example, uses the model of a cooperation game to explain conformity in social behaviour (Posner 1998, 767). Posner tries to reconstruct aspects of social reality as a repeated prisoners dilemma (see Ellickson 1991, 164), i.e.,put very simplya situation where cooperative behaviour will be rewarded with future payoffs by keeping the game going while non-cooperative behaviour (cheating or free-riding) will be rewarded with short-term benets but at the same time will end the game and thus foreclose the possibility of resolving the cooperation problem at stake. In economic terms, the basic problem is one of opportunism: (Boundedly rational) economic actors tend to destro[y] part of the cooperation surplus to secure a larger share of it (Cooter 1996, 47).1 The fear of opportunistic behaviour of their counterparts, however, might effectively prevent economic actors from entering into contractual relations and, more generally speaking, any kind of exchange process. Overcoming opportunism, therefore, is crucial to the functioning of any market-based economy. On this basis and taking into account an initial situation of incomplete information, Posner introduces a signalling model of economic interaction (Posner 2000b). Those players of the game that are willing to act cooperatively, he argues, have an interest in signalling this attitude towards other players by engaging in symbolic behaviour. The signalling is successful as long as the signal has the right cost structure to distinguish good cooperators from bad cooperators, the most striking example being the activity of gift-giving. Possible signals, i.e., social norms ascribing a meaning to a certain conduct, are introduced by public or private norm entrepreneursi.e., the state as well as individuals or corporations. Thereby, norms are generated in a fundamentally heterarchical process:
Many peopleincluding politicians, academics, novelists, journalists, and other cultural playerscompete to be a successful norm entrepreneur [. . .]. They propose
1

Oliver E. Williamson denes opportunism as self-interest seeking with guile (Williamson 1985, 47).
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signals; cooperators use the signal that seems most likely to create a separating equilibrium. There will be conict and confusion, but pooling around a single signal may emerge, with benets redounding to the norm entrepreneur(s) who proposed it. (Posner 1998, 774)2

This rather trivial model of social interaction can be further developed by distinguishing different mechanisms of social control that provide for both generation and enforcement of social norms. On the one hand, the economic and sociological literature stresses the importance of so-called relational norms, i.e., norms that arise from the bilateral interaction of the parties to a contract (second-party control mechanisms: Macaulay 1963; MacNeil 1980). On the other hand, it analyses informal (reputation-based) as well as formalised (organisational) third-party control mechanisms, e.g., arbitration or mediation proceedings under the auspices of a neutral third party (Ellickson 1991, 131). Generally speaking, however, these models dene as norms any type of behavioural control that enables cooperation. This leads Law and Social Norms-inuenced authors to emphasize the interrelatedness or even interchangeability of legal and social norms. Not only do social norms form the implicit basis of many commercial contracts (Bernstein 1993, 712): Often parties also rely on social sanctions rather than the state legal system when it comes to the enforcement of their mutual commitments (Charny 1990, 391; Posner 2000c; Dixit 2004, 60). To give an example, a party might terminate an ongoing business relationship and, thus, invoke damage to the reputation of the other party (Dietz and Nieswandt 2009). The role that law can play in this context is very limited: Its symbolic mechanisms will sometimes facilitate co-operation and sometimes interfere with it (Posner 2000a, 148). And as the chances of winning a breach of contract suit are pretty much random (ibid., 161), there are good reasons to stick with non-legal enforcement mechanisms. The transaction cost-based approaches of New Institutional Economics scholars such as Oliver E. Williamson further rene the analytical framework for dening good order and workable arrangements (Williamson 2005). They, too, start from the question of how to efficiently limit the opportunism of economic actors. The market, the rm, and hybrid governance mechanisms are then compared under the aspect of their capability to adapt to unforeseen situations in a transaction cost-efficient way. Depending on the attributes of a specic transaction (asset specicity, uncertainty, frequency) certain governance mechanisms will prove more efficient than others. Again, the theorys focus is on the (transaction cost) equivalence of different modes of economic governance. Accordingly, various types of social, i.e., non-legal, norms are considered to be equally
2

A separating equilibrium is established when all the good types send the signal to match up with each other and the bad types do not send the signal and either match up with each other or not at all.
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efficient as (international and state) law when it comes to securing the compliance of economic actors. But what immediately springs in mind, from a jurisprudence perspective, is that in comparing legal and non-legal modes of governance all the economic approaches discussed here basically rely on the distinction between public and private ordering. The difference between social norms and legal rules is attributed to the fact that the latter are made by public authorities, while the former are generated by private actors. Consequently, much like classical legal positivism, they argue that there can only be law where individual/corporate behaviour is regulated by the nation-state (Ellickson 1991, 127). The very distinction between public and private ordering, however, has long become questionable not only in law (Cohen 1927, 8; Kelsen 1960, 268) but also in its neighbouring disciplines (Geuss 2001). In the ambit of transnational governance it is even more difficult to be upheldeven from a purely analytical point of view. For without the nation-state as an Archimedean point of reference, the public or private status of regulators becomes fundamentally ambiguous. In the transnational arena, States, industry, and civil society often compete, intermingle, and work together in their regulatory efforts (Slaughter 2004; Zumbansen 2006). All economic theory can tell us about these hybrid forms of regulation is whether they are (economically) equivalent to state-sponsored means of regulation. What they cannot tell us is whether these forms can be considered as law or not. Yet this is a question that remains central to any jurisprudential endeavor. Doing away with the distinction would not only mean foreclosing any normative perspective of constitutionalizing private governance regimes (Teubner 2004), of subjecting the economic forces of globalization to the rule of law. But also on an analytical level there is a strong case to be made for upholding the law/non-law distinction. Is the dominant role of law in society nothing more than an evolutionary anomaly of the European nation-state as Niklas Luhmann (2004, 490) suggested in the 1990s? Or does it survive in new forms by adapting its internal structures to the processes of globalization as Gunther Teubner (1997) argues? Jurisprudence and the social sciences have to face these most pressing questions and yet they are lacking an adequate analytical framework for empirical research that, on the one hand, takes globalisations challenges to the law seriously and, on the other hand, does not ignore that laws rationality is a rationality apart (Fried 1981, 58). That leaves us with a mixed picture of the usefulness of economic theories with a view to analyzing global governance regimes. On the one hand, they aptly explain how regulation of behaviour can work in the absence of state law. On the other hand, they lack the analytical means to distinguish between the respective function of law and non-legal norms. Instead, they rely on the state-centred categories of public and private
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ordering that often seem under-complex in the face of an ongoing globalisation of politics, the economyand the law.

2.2. Norms and the Legal System The reason why Law and Social Norms and other economic theories of law fail to uphold the analytical distinction of law and non-legal forms of regulation is that they reduce law to its usefulness for the coordination of economic actors (Hetcher 2002, 3656). From this point of view, law is just a means, but not the only means, of securing commitment between commercial actors (Hadeld 2001, 43). To overcome the shortcomings of these theories we suggest shifting the focus from laws function for social actors to its function as a social system of communication. On the basis of systems theory, we will assume that law is a system of communications characterised by the binary code legal/ illegal, and that this code is handled on the level of the second-order observations of the legal system (Luhmann 2004). We can then analyse the interaction of this communicative system with different social sub-systems as well as its interaction with society as a whole, i.e., the totality of all social communications. In the following paragraphs, we will show how this denition of law plays out in the context of global governance regimes and how it can be reconciled with the functional approaches in economic theory described above. In order to do so, following Luhmann, we shall distinguish between the performance and the function of law in modern societies (ibid., 167). The function of law is given by reference to society as a whole, whereas performance denotes the services that the legal system provides to other functional subsystems of society like the economy, politics, and so on (Luhmann 1998, 7578). 2.2.1. Performance The possible performances of law towards other social systems are mainly constituted by behavioural control and dispute resolution. At this point there is a considerable overlap of a systems theory approach and the conceptions of Law and Social Norms as discussed above. When analysing law as providing dispute resolution services and a certain level of behavioural control, e.g., for the economic system, a plethora of functional equivalents to law comes into mind. This means that the performances of law are not necessarily fullled by reference to the legal code. Instead, the behaviour of economic actors might be regulated just as well (or even more efficiently) by social norms; and ADR provides a good example of the resolution of social conicts outside the legal system.
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The specic societal function of law, therefore, must be found on a different level. In fact, when we turn to its relation to society as a whole, law fulls only one function: the stabilization of normative expectations, i.e., expectations that are upheld even in case of disappointment. This function is what, on the one hand, distinguishes law from every other functional subsystem and, on the other hand, determines the way in which legal communications are processed. Because [i]f law has the function of stabilizing normative expectations in the face of an unorganised growth of normative expectations [. . .], this can be achieved only by a selection of those expectations that are worth protecting (Luhmann 2004, 152). We shall thus take a brief look at the mechanisms that provide for this selection. From a constructivist perspective, the process in which law decides which norms to protect is necessarily a recursive one:
Whether a norm is a legal one or not can only be ascertained through observation of the recursive network that produces legal norms; that is, through an observation of the context of production which becomes a differentiated system through its operations. (Ibid.)

The counterfactual stability of normative expectations is thus guaranteed by the operative closure of law in a legal system, i.e., the network of legal communications perpetually referencing to other legal communications (Luhmann 2004, 106ff.). This implies a new understanding of the relationship between structure and operation (process) which can be subsumed under the concept of autopoiesis: The legal system produces and at the same time is a product of legal communications. This, in turn, presupposes the legal systems capability of second-order observation because the autopoietic legal system [i]n order to specify its operations as legal ones, [. . .] has to ascertain what it has done so far (Luhmann 2004, 90). At this point it establishes its very own logics of remembering and forgetting providing that those norms that are referred to in an institutionalised linkage of episodes (Teubner 1997, 16) are condensed and conrmed, while others just fall into oblivion (Calliess 2002, 196). In common law systems this institutionalised memory is guaranteed by the reliance on judicial precedents and the doctrine of stare decisis. The doctrine acts as the invisible hand of the system by making sure that adjudication orients itself along the lines of a few leading cases that act as points of reference for later decisions (Shapiro 1972, 133). What is law and what is not is then dened by the legal system itself: All law is valid by decision only. At the same time, the selective reference to earlier judgements evokes the impression that each decision is but the product of earlier decisions (Calliess 2002). The social function of law is thus guaranteed through the self-referentiality of legal communications. By observing its
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own operations, the legal system selects those expectations that can be normatively upheld, while at the same time making sure that it is normatively expected to expect normatively (Luhmann 2004, 1578). This insight provides us with the basic elements of a terminological framework for analysing the respective role of law and social norms in the context of global governance. The performances of law, we can conclude, might be equally fullled outside the legal system, which explains the rise of non-legal forms of regulation and dispute resolution on the global scale. The function of law, however, dened as the stabilisation of normative expectations, can only be fullled within the self-referential structures of a legal system. This will help us analyse whether and to what extent global governance regimes might develop into legal systems. 3. Global Governance: An Evolutionary Perspective After having identied the function of stabilising normative expectation as the crossing line between legal and non-legal forms of regulation, we can lay out the conditions under which global governance regimes might cross this line. This evolutionary process can be described against the background of a competition in terms of performance and function between different forms of regulation. 3.1. Crossing the Line: From Soft Law to Hard Code As we have seen, the function of law is fullled where a legal system establishes selective mechanisms for the temporal stabilisation of normative expectations by observing its own operations. These mechanisms of remembering and forgetting, however, are only triggered where normative expectations are contested, where there are conicts to be decided. Because only then there is occasion for a communication in terms of legal/illegal:
The departure point for the evolution of law is the initially barely marked distinction between uncontested and contested cases of disappointment. Only if conicts can be verbalized [. . .] can a second-order observation arise, because only then is one obliged to decide who is in a legal position and who is in an illegal position. (Luhmann 2004, 246)

The rst enabling condition for the evolution of a legal system can thus be found in the verbalisation of conicts. We can dene this verbalisation as the communication of a social conict in terms of legal/illegal and vis--vis a third party. Any governance mechanism can full this condition where it provides for a third-party dispute-resolution procedure that is legalised in the sense that it effectively suppresses ad hoc and ad hominem arguments (ibid., 248).
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The second enabling condition for the evolution of a legal system can be found in the mechanisms of remembering and forgetting we have described above. A second-order observation can only arise where there are points of reference for the interlinkage and mutual reference of legal communications. These points of reference are most often constituted by precedentsor, less likely, a doctrinal elaboration of legal principles (Hart 1997, 77). In any case, these points of reference can only be reected in legal communications if they are accessible for later communications, i.e., if they are made public. Therefore, the second condition is fullled where legal communications are published, most likely in the form of judicial decisions, but also in the form of textualised norms. A global governance regime, we can thus conclude, might develop into a legal system at least under the conditions that (a) it provides for an impartial dispute resolution procedure in the above-mentioned sense and that (b) past decisions are published (Calliess 2002, 43). 3.2. Performance vs. Function At which point this line is crossed, however, is also determined by the interdependence of laws performances and its function. As we have seen, the decision of contentious cases is crucial to the development of a governance regime into a legal system. Any such mechanism, however, will only be able to attract cases if it is regarded by potential claimants as performing satisfactorily in terms of dispute resolution andpossibly behavioural control. Performance with regard to conict-resolution can be measured against a number of different factors: accessibility (standing), speed (rules of procedure), affordability, andmost importantly attractive remedies (Calliess 2005). Yet while enhancing its performance these factors might at the same time impair the regimes function as a legal system. There is a perpetual conict between the capability to attract conicts and the capability to resolve these conicts in a way that contributes to the stabilisation of normative expectations with regard to society as a whole. From the perspective of legal discourse, this conict is described in the categories of fairness vs. legal certainty. It is well illustrated by a brief look at legal history that shows how and with which consequences dispute resolution is performed inside and outside the legal system. At various stages of their evolution, European legal orders have been in need of development aid from outside the law (Calliess 2005, 46). In classical Roman jurisprudence, aequitas as a maxim in adjudication helped overcome the formalism of the ius civile by providing for principles of conict-resolution that were explicitly not based in positive law (Wieacker 2006, 8990). In praetorian judicature this led to a parallel development of the traditional ius civile and an emerging ius honorarium as jurist-made law
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(Waldstein and Rainer 2005, 121, 136). And, many centuries later yet in a similar way, Equity as a supplementary body of rules began developing in the fteenth century alongside the English common law. It was mainly the lack of attractive remedies in common law (providing for damages only) as well as the need for more exible forms of action that led to the rise of this supplementary system of adjudicationin other words: It was its ability to attract and verbalise conicts (Hanbury and Martin 1993, 445). But after having been administered by the Court of Chancery until the end of the nineteenth century, Equity was re-integrated into the common law by the 187375 Judicature Actsjust as the rapid development of aequitas in Roman law seems to have come to a halt around the third century:
Each of them tended, and all such systems tend, to exactly the same state in which the old common law was when Equity rst interfered with it. A time always comes at which the moral principles originally adopted have been carried out to all their legitimate consequences, and then the system founded on them becomes as rigid, as unexpansive, and as liable to fall behind moral progress as the sternest code of rules avowedly legal. (Maine 1861, 6869)

The tension between (single case) aequitas/Equity as deciding each case on its own merits and (systemic) justice as treating like cases alike, it seems, has in both instances been gradually resolved in favour of an allencompassing legalisation of formerly non-legal adjudication principles. Having started off as alternatives to the legal system in terms of performance, it seems that both aequitas and Equity became less and less capable of outperforming the legal system as they also took on its stabilising function. While it is obvious that these insights cannot easily be translated to todays regulatory mechanisms, this shows very well which factors fairness and case-orientation on the one hand, legal certainty on the other handdetermine the oscillation of conict-resolution between legal and non-legal forms of governance. 3.3. Global Governance: Three Examples In order to examine whether we can describe similar mechanisms in the context of global governance, we shall now very briey present three examples of regulatory regimes on the global level. All these regimes are established and maintained by private actors. Although, to a certain extent, they necessarily operate in the shadow of the law, they can be seen as increasingly autonomous forms of regulation beyond the nation-state. 3.3.1. Lex Mercatoria In contemporary jurisprudence the most-discussed example of a global regulatory regime is denitely that of lex mercatoria or the New Merchant
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Law. Yet even its existence is subject to a heated discussion (Teubner 1997, 7). While some authors try to talk this body of norms into existence and even speak of a creeping codication (Berger 1999), others see nothing more than a phantom conjured up by a few speculative Sorbonne professors (Teubner 1997, 12). Substantially, lex mercatoria claims to rely on the rules and usages of international trademanship, thereby alluding to the medieval law merchant (Cordes 2003). Hard evidence for the reality of an emerging New Merchant Law, however, is only to be found in the references made to it in arbitral awards (Calliess 2002, 1934). In fact, lex mercatoria is best categorised as a certain procedural setting in the context of ADR mechanisms and as the adjudication of conicts according to general fairness-oriented principles. 3.3.2. ICANN UDRP Our second example relates to the context of internet regulation, where the arbitration of disputes is provided for by the Uniform Domain Name Dispute Resolution Policy (UDRP) of the Internet Corporation for Assigned Names and Numbers (ICANN). ICANN is a private non-prot organisation, responsible inter alia for the management of the domain name system, i.e., the global addressing system of the Internet. In 1999, it adopted the UDRP as a quick, efficient, and cost-effective on-line dispute resolution procedure for domain name disputes (Calliess 2002). Its primary goal is to deal with the practice of cybersquatting, i.e., the pre-emptive registration of trademarks by third parties as domain names. All registration service providers accredited with ICANN as registrars of the generic top-level domains .com, .org, etc., have incorporated by reference the UDRP in the registration agreements with their customers, who are the individual domain name holders. 3.3.3. CSR Our third example is constituted by a governance mechanism that is much discussed in both corporate and (public) international law: Corporate Social Responsibility (CSR). CSR primarily refers to voluntarily adopted codes of conduct laying down the social and environmental policies of transnational corporations (TNCs). Thus, it basically works as governance by self-commitment: It is not about reciprocal obligations but about the unilateral setting of standards in the elds of human rights, anticorruption, labour conditions, etc. Increasingly, TNCs also co-operate to adopt common standards for CSR. These collective efforts are reected in initiatives like the OECD Guidelines for Multinational Enterprises,3 the
3

http://www.oecd.org/dataoecd/56/36/1922428.pdf.
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UN-sponsored Global Compact,4 and, most recently, the UN Draft Norms on the Responsibilities of Transnational Corporations and other Business Enterprises with Regard to Human Rights.5 In a more comprehensive denition, CSR can be said to include all actions which reduce the extent of externalized costs or avoid distributional conicts (Heal 2004). From a governance perspective, however, we will focus on CSR as a means of corporate self-regulation. 3.4. Performance Competition With a view to their performance, global governance regimes compete with domestic legal systems and international law in various regards. They are predominantly used as a way of resolving disputes outside domestic legal systems such as in the case of ADR mechanisms, but they can also step in the place of international law by regulating the behaviour of transnational actors the way CSR does. The performance of lex mercatoria, for example, is characterised by its embeddedness into ADR mechanisms. The reference to lex mercatoria in arbitral proceedings provides for the fairness-oriented and case-specic resolution of conicts between commercial actors, thus providing dispute resolution services to the economic system. Accordingly, it stands in a self-proclaimed competition to domestic legal systems in the eld of dispute-resolution. This performance competition, however, takes place on the level of procedures rather than with regard to substantive norms. The basic idea of international commercial arbitration is that the parties to a cross-border contract agree to submit their disputes for decision to a privately elected tribunal. An arbitration clause in their contract allows parties to effectively opt out of domestic legal systems.6 The possibilities to set aside an arbitral award at the seat of arbitration are rather limited (UNCITRAL Model Law on International Commercial Arbitration, Art. 34) as is the possibility of national courts to refuse a later recognition/ enforcement of the award (New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Art. 5). The resulting advantages of private arbitration as compared to domestic legal systems are manifold. First, arbitration is cheaper, especially in high value disputes. Second, it is also quicker as there are no stages of appeal. Third, arbitration can provide for a perceivably neutral venue in the settlement of international disputes,
4 5

http://www.unglobalcompact.org. http://www.unhchr.ch/Huridocda/Huridoca.nsf/TestFrame/ 64155e7e8141b38cc1256d63002c55e8?Opendocument 6 International Chamber of Commerce, Standard arbitration clause, http://www.iccwbo.org/ court/english/arbitration/model_clause.asp: All disputes arising out of or in connection with the present contract shall be nally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.
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whereas under traditional conict of laws, the forum would usually be one of the parties country of domicile. Fourth, the arbitrators can be chosen according to the parties preferences. Last but not least, arbitral proceedings are non-public. In all of these aspects, lex mercatoria-based ADR mechanisms effectively outperform domestic legal systems. The performance of ICANN UDRP can be described in very similar terms. What UDRP basically provides for is an adversarial court-like procedure before an accredited arbitral panel, while the applicable law is restricted to a single substantive norm (among several procedural provisions): the UDRP denition of cybersquatting. The performance of ICANN UDRP, thus, is very much comparable to that of other ADR mechanisms in that it provides dispute-resolution services to the business community as well as to private individuals. The most notable difference as compared to other ADR mechanisms is to be seen in the fact that with regard to its scope ICANN UDRP has a de facto monopoly: Due to the centralised structure of the domain name system, the transfer and deletion of domain names simply cannot be performed by any competitor. It is considerably more difficult to discern the specic performance with regard to our third example. As CSR guidelines are not directly legally binding, they are not intended to be used in the adjudication of conicts (Dilling, Herberg, and Winter 2008). They rather serve as a means for building up social pressure:
Even if transnational corporations and other business enterprises are not legally bound by the [UN Draft] Norms, there will be considerable pressure to comply with the Norms, since individual companies will be exposed to world public opiniontheir customersin the respected forum of the UN. (Hillemanns 2003; see also Weissbrodt and Kruger 2003)

The performance of CSR thus does not lie in providing dispute resolution to businesses or consumers but in a benet to the global economic system: the regulation of (corporate) behaviour which levels the playing eld for economic actors in terms of production standards by internalizing external effects of corporate behavior. The example illustrates very well how, from an economic perspective, corporations can act as private norm entrepreneurs by using corporate codes of conduct for signaling their reliability towards other economic actors, i.e., their consumers. Again, this is a performance that cannot be achieved by domestic legal systems as their reach is territorially limited. Nor can this be achieved by (public) international law as TNCs commonly are not regarded as having international legal personality (Brownlie 2003, 65f.). From a performance perspective, however, it is impossible to characterise governance regimes as being based on either law or social norms because the performances we have outlined abovedispute resolution as well as behavioural controlcan be achieved by both legal and non-legal means.
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3.5. Functional Competition The interesting question, then, is whether out of this mere performance competition there might also evolve a functional competition with domestic legal systems and international law. Both ICANN UDRP and arbitral practice referring to lex mercatoria are conceived of as Alternative Dispute Resolution, as a way of consciously settling conicts outside the law. And CSR characterises itself as mere soft law, thus also locating itself outside the boundaries of legal discourse. Yet, as our historical examples show, the border lines of legal discourse are all but impermeable. Whether they are crossed or not depends, as we have seen, on the two basic preconditions that conicts are verbalised in terms of legal communications vis--vis a third party and that these communications are published to serve as a starting point for second-order observation in other legal communications. With regard to the verbalisation of conicts, transnational legal systems thus must provide for a procedure of third-party conict-resolution (Calliess 2002, 53). Such a procedure is easy to make out with regard to transnational commercial arbitration as well as the ICANN UDRP. They both institute arbitral panels assuming the role of the alter ego, the generalised other, in the settlement of a dispute (ibid., 195). With regard to (self-)regulation by CSR standards, however, there isso farno court or other forum that provides for third-party dispute resolution. But this might rapidly change if, e.g., domestic courts were to rely on collective codes of conduct when concretising (domestic or international) law standards regarding corporate behavior. Against the background of a rising tide of human rights litigation not only in United States courts,7 it does not seem impossible that domestic courts might rely on CSR standards when concretising human rights standards in customary international law8 or general clauses in domestic private law.9 In addition, new dispute settlement procedures might be created in the context of CSR. The OECD Guidelines for Multinational Enterprises, for instance, are supported by a unique implementation mechanism: Through their specic instances facility, National Contact Points (NCP), govern7 For examples of this kind of litigation, see especially Filrtiga v. Pea-Irala, 630 F.2d 876 (2d Cir. 1980), accepting civil damages actions for human rights violations under the 1789 Alien Tort Claims Act (ATCA) and Sosa v. Alvarez-Machain, 124 S. Ct. 2739 (2004), arguably implying that corporations are legally capable of violating customary international law and may be subject to jurisdiction under the ATCA (cf. generally Shaw 2002). 8 At least to the extent that, e.g., the UN Draft Norms on the Responsibilities of Transnational Corporations and other Business Enterprises with regard to Human Rights can be considered a reection of already existing customary international law. 9 As it is already practiced for international treaties; see, e.g., AG Tauberbischofsheim, Neue Juristische WochenschriftRechtsprechungsreport (1992), holding that like the fundamental rights guaranteed by the Basic law, the rights embodied in the European Convention on Human Rights affect private law relations by virtue of the general clauses by the German private law.

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ment agencies responsible for the guidelines, offer to help parties resolve disputes. Since 2000 some 130 specic instances have been brought to the NCPs attention. Most of them concerned the employment and industrial relations chapter of the guidelines and were related to business operations in developing countries.10 The mediation and conciliation of these cases constitutes another instance of performance competition between law and ADR mechanismsalthough the powers of the NCOs are rather limited and do not enable them to issue binding decisions. With regard to the second functional prerequisite for the emergence of a legal system, we have to examine whether global governance regimes are capable of selecting the normative expectations that can be normatively expected. It is only through an institutionalised logic of remembering and forgetting that this can be achieved. Once a dispute resolution mechanism can observe, and refer to, its own decisions it guarantees legal certainty in its most basic form: by treating like cases alike. This goal is achieved by legal reasoning which describes the stabilisation of legal norms as a problem of consistency (Luhmann 2004, 257f.): Every decision has to expressly integrate itself into the continuum of other decisions. It can be observed that arbitral tribunals, as soon as they publish their decisions, engage in this kind of discourse. This is most obvious with regard to ICANN UDRP tribunals: Even though the UDRP Rules do not provide for the binding nature of precedent, almost every panel decision refers to earlier cases employing the well known common law techniques of analogical reasoning. This is obviously greatly facilitated by the fact that all decisions are webpublished.11 As a random example, we might take the following reasoning of a UDRP Panel in the mcdonaldslovesjesus.com12 case:
The Panel notes that in the principal case relied upon by Respondent in support of its noncommercial use argument (Bridgestone Firestone, Inc. et al. v. Myers, No. D2000-0190, WIPO July 6, 2000), the domain name registrant was a former employee of Bridgestone-Firestone and developed a website under the domain name bridgestone-restone.net in order to offer constructive criticism of his former employer. The instant case is distinguishable in that, as noted above, Respondent is not engaged in any criticism of Complainant. (emphasis added)

But the evolution of second-order observation mechanisms is even more important with regard to lex mercatoria whose impossible reality is measurable [only] by the number of references made to it (Calliess 2002,
10 OECD, The Contribution of the OECD Guidelines for Multinational Enterprises to Managing Globalisation, Paper prepared for distribution at the meeting of G8 Labour and Employment Ministers, May 68, 2007, Dresden, Germany, 2007, http://www.oecd.org/ dataoecd/5/34/38543990.pdf. 11 http://www.icann.org/udrp/udrp.htm. 12 McDonalds Corporation v. The Holy See, Claim Number: FA0304000155458, http://www. arbforum.com/domains/decisions/155458.htm.

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201). The legal existence of lex mercatoria principles, this means, depends on their being referred to in a choice of law clause by the parties to a commercial contract and subsequently adjudicated by an independent tribunal. Adjudication can in this context be regarded as performative speech acts (Dunn 2003), that literally talk into existence (Calliess 2002, 207) lex mercatoria. These speech acts, however, gain their performative quality only by the linkage of episodes (Dworkin 1982; Yoshino 1994) that especially the doctrine of precedent provides for. But so far, there is only an inchoate practice of precedent and stare decisis in commercial arbitration which, together with the lack of any institutionalised court hierarchy (Teubner 1997, 18),13 at least slows down the development of an autonomous legal system of lex mercatoria. We can thus conclude that with regard to the ICANN UDRP and, to a lesser extent, lex mercatoria the enabling conditions for the evolution of a legal system are met. Arbitral tribunals thus enter into a functional competition with domestic courts. Other private or hybrid governance regimes such as CSR standards largely lack these features and it seems still an open question whether they will succeed in initiating the communicative process of generating legal norms. A comparison of the three regimes we have described is given in the table below.
Table 1
Performance Behavioural control / dispute resolution CSR lex mercatoria ICANN UDRP Yes Yes Yes Verbalisation of conicts Partial Yes Yes Function Second-order observation mechanisms No Partial Yes

4. Conclusion: Evolutionary Anomaly or Survival of the Hybrid? The preceding paragraphs have outlined an interdisciplinary approach to law and globalization that is both open to the social sciences and compatible with normative jurisprudential approaches. The focus on functional analysis offers a conceptual framework for explaining the generation of social norms and governance structures outside the nation-state legal system. By complementing this framework with insights from the theory of autopoietic social systems, such governance structures can also be analyzed as following their own evolutionary logics and thus developing genuinely normative elements.
13 The lack of institutional hierarchy might possibly be replaced by different forms of reputational hierarchy, though.

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In connection with the examples we have outlined above, this interdisciplinary perspective allows us to make some preliminary observations on the relation of law and social norms on the global level. Specically, the evolution of legal systems in the ambit of global governance can be described as a permanent reconguration of the conict between their specic performance and their function with regard to society as a whole. Where legal systems fail to perform satisfactorily and escape into legal formalism, alternative ways of dispute resolution will take their place just like the transaction cost-based models of economic theory suggest. While many ADR solutions do not yet full the function of guaranteeing legal certainty and thus stabilising normative expectations, they might still develop towards formalised legal systems. The latter phenomenon is well illustrated by the examples of lex mercatoria and ICANN UDRP. Looking at this oscillation of global governance mechanisms between law and social norms, the preceding paragraphs have also hinted at a possible answer to the more general question whether the central role of law in European societies should be regarded as an evolutionary anomaly or whether law in the ambit of global governance might survive in new hybrid forms. Based on our brief tour dhorizon of various forms of private and hybrid ordering on the global scale, there are basically two concluding statements that can be made on this matter. On the one hand, it is obvious that state legal systems are challenged by non-legal forms of regulation in an increasingly tough competition, where they are often outperformed by ADR and soft law mechanisms. CSR provides a good example of how (corporate) behaviour may be regulated by social norms, its violations being sanctioned predominantly by public opinion. On the other hand, a systems theory-informed approach to law and social norms also shows how transnational regulatory mechanisms can be legalised through the establishment of an institutional and procedural setting that allows for the autopoietic generation of legal communications. This trend is evidenced by the contemporary developments in lex mercatoria as well as under the ICANN UDRP. (for Gralf-Peter Calliess) University of Bremen Law Faculty D-28353 Bremen E-mail: calliess@uni-bremen.de (for Moritz Renner) University of Bremen Collaborative Research Center 597 P.O. Box 33 04 40 D-28334 Bremen E-mail: moritz.renner@sfb597.uni-bremen.de
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